Flipping Houses: Explained
If you love to tear up carpet or install drywall, flipping houses might be for you! Home renovation tv shows have popularized the idea of buying a house that needs a little work, adding some do-it-yourself renovations, and selling at a higher price. But if it were that easy, everyone would do it! While flipping houses can be a great way to make money, it can also be a financial disaster. Before you buy an investment property to fix up, educate yourself about smart moves, potential pitfalls, and everything in between when it comes to how to flip a house.
What Does It Mean to Flip a House?
Flipping houses means to buy homes at a below market price, fix them up, and sell at a profit. This typically takes place in a short time frame, anywhere from a few months to a year. Flipping a house does not mean buying a fixer-upper that the owner occupies and gradually improves over time. An investor who wants to flip a house will purchase it, start improvements right away, and sell it as soon as it is ready for a much high price.
How to Flip a House the Smart Way
If you want to make money flipping a house, think strategically from the beginning:
- Pay the below-market price. You have to put money into a home to flip it. So it stands to reason that you only make money if the purchase price was low to begin with. A good rule of thumb is to pay less than 80% of the market value minus the cost of renovations. Partner with a knowledgeable real estate agent to make sure you know the local real estate market.
- Pay cash. If you take out a loan, the monthly interest on that loan eats into your profit. You may also feel pressured to sell as quickly possible so you can pay off the loan, and that might cause you to settle for a lower price.
- Make a budget. To make money on a flip, you need to make a budget before you start. Plan out how much money you have to spend on the actual purchase as well as the renovations. Any time you go over budget, you reduce your profit, so make a budget and stick with it. If you plan to renovate the home yourself, simply factor in the cost of supplies. If not, bring in a contractor and get an estimate.
- Get an inspection. While the house is under contract, have it inspected so that you know exactly what you are getting into. Better to back out at the beginning than to find yourself in over your head with costly repairs after the closing.
- Carefully choose renovations. Select projects that will get the most bang for your buck–relatively inexpensive renovations that dramatically improve the appearance of the home. Bathrooms and kitchen renovations are notorious for poor return-on-investment. Instead of installing a brand new kitchen, refinish or repaint the cabinets, replace the countertops, and update the appliances. Fresh paint and new carpet completely change the feel of a home for a relatively low investment. Focus your money on projects that will increase the selling price without costing you too much money.
If you are interested in buying a home in Lancaster PA or selling your home, whether that means flipping houses or not, reach out to The Jeremy Ganse Home Selling Team. Our real estate agents have years of experience in the Lancaster, PA, area, and would love to help you with all of your real estate needs.